Wednesday, August 17, 2016

TARGET STRUGGLES

Target Dims Outlook as Sales Struggle

Retailer’s same-store sales fall for the first time in more than two years as traffic declines


Target said quarterly same-store sales fell for the first time in more than two years and warned of further declines. ENLARGE
Target said quarterly same-store sales fell for the first time in more than two years and warned of further declines. Photo: Getty Images
Target Corp. TGT -6.43 % on Wednesday said sales at established stores fell for the first time in more than two years and warned of further declines, signs that Chief Executive Brian Cornell’s turnaround push has stalled.
During the second quarter, sales at stores open at least a year fell 1.1% from a year ago, as fewer shoppers visited the company’s locations.
Target cut its annual profit target and warned that same-store sales would be flat to down 2% for the fiscal year.
“Our number one challenge was traffic, which affected sales in all of our merchandise categories,” Mr. Cornell said in a conference call.
Mr. Cornell highlighted declining demand for electronics, especially Apple Inc. products, for much of the sales weakness in the category. He said sales of iPhones, iPads and other gadgets fell more than 20% in the quarter ended July 30.
Target said its grocery business, which accounts for a fifth of revenue, was disappointing, as sales declined despite efforts to improve its fresh produce and add more organic items. Chief Financial Officer Cathy Smith said the retailer plans to dial up grocery promotions and marketing efforts, which have been largely focused on style items.
Shares of the company fell 6.5% to $70.61 in early Wednesday trading.
Target had warned that same-store sales could drop 2% during the second quarter. Analysts had predicted a 0.9% decline, and a year earlier, same-store sales climbed 2.4%. The fall is the first since Mr. Cornell took over as CEO and the worst since the start of 2014, when the company was trying to recover from a computer hack that exposed millions of credit cards and consumer data.
Mr. Cornell has been working to reinvigorate sales by focusing on higher-margin categories, shuffling management and embarking on cost cuts. But the company’s second-quarter report and its outlook for the year suggest his turnaround efforts are running out of steam, as retailers across the spectrum contend with falling foot traffic and American consumers who are changing what they buy and where they buy it.
Target “continues to be impacted by challenged consumers across multiple income demographics, as well as a food business that still needs to gain traction,” said Charlie O’Shea, an analyst at Moody’s Investors Service. The guidance cut shows that “back-to-school, college and holiday selling seasons may not provide [a] meaningful sales lift,” and both seasons are likely to be highly promotional, he said.
Mr. O’Shea said he expects Target to remain disciplined when it comes to pricing, costs and inventory management to support its margins.
The retailer isn’t alone in reporting softer sales on fewer visits. Apparel giant Macy’s Inc. M -0.71 % last week said it would shut 100 more stores, or 14% of its physical base, as shoppers increasingly opt to make purchases online and spend more on services than on goods.
Investors will see Target’s lowered forecasts as confirmation that the retailer “does not have an answer in place to the pressures it faces from channel shift and other secular changes in consumer spending patterns,” John Zolidis, an analyst at Buckingham Research Group, wrote in a research note.
Wal-Mart Stores Inc., which is expected to report results Thursday, has projected a slight increase in same-store sales in the latest quarter. In a bid to boost its online sales, Wal-Mart recently agreed to buy web retailer Jet.com Inc. for $3.3 billion.
For Target, digital sales continued to slow during the quarter, rising 16% versus 23% in the first quarter and just about half the pace logged a year earlier.
In all for the second quarter, Target reported a profit of $680 million, or $1.17 a share, down from $753 million, or $1.18 a share, a year earlier. Excluding a loss stemming from early retirement of debt, among other items, per-share profit rose to $1.23 from $1.22.
Revenue slid 7.2% to $16.17 billion, partly reflecting the sale of its pharmacy business to CVS Health Corp. CVS -0.01 %
Analysts had projected $1.12 a share in adjusted earnings on $16.18 billion in sales, according to Thomson Reuters.
Target cut its profit goals for the full year, now forecasting adjusted earnings of $4.80 to $5.20 a share, down from its original target of $5.20 to $5.40 a share.
For the current quarter ending in September, Target expects a profit of 75 cents to 95 cents a share, compared with the 95 cents analysts have expected.
“Although we are planning for a challenging environment in the back half of the year, we believe we have the right strategy to restore traffic and sales growth over time,” Mr. Cornell said.
Write to Khadeeja Safdar at khadeeja.safdar@wsj.com and Lisa Beilfuss at lisa.beilfuss@wsj.com